AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (8) TMI 659
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....e following disallowances: i) Bank guarantee commission of Rs. 56,51,347/- ii) Legal charges of Rs. 4,04,000 u/s 40(a)(ia) iii) Expenses of Rs. 15,00,000 on adhoc basis. 3. The assessee preferred its appeal to CIT (A), who allowed it in part i.e. directed the AO to allow the expenditure of Rs. 4,04,000 if it was already paid, by following the decision of the Special Bench in the case of Merilyn Shipping & Transport reported in (136 ITD 23) (SB). However, the CIT (A) confirmed the other two additions on the ground that the assessee failed to furnish the evidence in support of its contentions and as directed by the ITAT. The assessee is thus in appeal before us in the second round of litigation by raising the following grounds of appeal: "1. The Ld. CIT-(A), Hyderabad erred both in law and on facts while allowing the appeal in part. 2. The Ld. CIT-(A) erred in sustaining the disallowance made by the AO for an amount of Rs. 58,61,347/- towards Bank Guarantee Commission. 3. The Ld. CIT-(A) ought to have appreciated that the bank guarantees have been issued by the principle contractor on behalf of the appellant and that the expenses in respect of the same are incurred by ....
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....ought to have appreciated that the Assessing Officer has not appreciated the direction of the Hon'ble ITAT vide para No.16 of their order dated 22-03- 2012 before making the disallowance. 13. The Ld. CIT(A) while, confirming the disallowance of Rs. 15,00,000/-has grossly ignored the observation of the Hon'ble ITAT vide para No.16 of their order dated 22-03- 2012 that considering the nature of discrepancy noticed by the Assessing Officer, they were of the opinion that ad4 11 hoc disallowance at Rs. 15,00,000/- was on higher side and that in their opinion, to meet the ends of justice, disallowance of 5% of the expenditure would be proper. 14. The Ld. CIT(A) ought to have restricted the disallowance towards unvouched expenditure to the extent of only 5% of cash expenses. 15. The assessee may add, alter, or modify or substitute any other points to the Grounds of appeal at any time before or at the time of hearing of the appeal". 4. Further, vide letter dated 28.7.2017, the assessee has raised the following additional grounds of appeal: "In continuation to the earlier grounds of appeal filed from S.No.1 to 15 in respect of the assessee for the A.Y 2007-08, additiona....
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....f of the assessee. The Tribunal has therefore, directed the AO to verify if the bank guarantee has been furnished by M/s PCL on behalf of the assessee. The AO however, has embarked on a fresh inquiry as to the allowability of the expenditure which is not the direction of the Tribunal. Therefore, we issue this interim direction to the AO to furnish a remand report with a copy to the other side on or before 29.01.2018 after verifying the documents furnished by the assessee with regard to the bank guarantee furnished by PCL to THDC and if necessary calling for confirmation from M/s PCL with regard to the assessee's claim that PCL has given bank guarantee on behalf of the assessee and has paid the sub contract receipt to the assessee only after reducing the bank guarantee commission paid by it to the Punjab National Bank. The assessee shall cooperate with the AO by furnishing the relevant material and the AO shall give the assessee a fair opportunity of being heard during the remand proceedings. It is accordingly ordered. Copy of this order is to be furnished to both the parties. Sd/- Sd/- (AM) (JM) 23rd November, 2017" 6. In compliance thereof, the AO replied to the CIT ....
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.... Rs. 58,61,341 and the same was reimbursed by the assessee to M/s. PCL as the bank guarantee is given on behalf of the assessee in favour of M/s. THDC. According to the assessee this is a business expenditure. In our opinion, if the bank guarantee has been given to M/s. THDC by M/s. PCL on behalf of the assessee then the bank guarantee commission has to be treated as business expenditure in view of the judgement of jurisdictional High Court in the case of ACIT vs. Akkamba Textiles Ltd. (117 ITR 294) wherein it was held as under: "The question whether a particular expenditure is revenue expenditure incurred for the purpose of the business must be viewed in the larger context of business necessity or expediency. If the outgoing expenditure is so related to the carrying on or the conduct of business, that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition to the carrying on of business, the expenditure may be regarded as revenue expenditure. The transaction of acquisition of assets can be said to be closely related to the commencement and carrying on o....
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....ithin 7 days of the mobilization advance bank guarantee being as and when returned by the employer. The Mobilization advance given shall be shared equally i.e 50% each by PCL and RSJV. The interest on Mobilization advance levied by Department shall be borne proportionately (i.e. 50% each) by both the parties. The margin monies and bank commissions for the Bank Guarantees shall be borne proportionately (i.e. 50% each) by both the parties. Commissions incurred obtaining the mobilization advance bank guarantee including the commission towards extension of mobilization advance bank guarantee.............. c) All other Bank Guarantees necessary during the execution of work will be provided by either by RPL or Swathi Individually on behalf of PCL Inteertech Lenhydro Consortium JM to the employer" 10. Thus, it can be seen that RSJV was required to furnish the Bank Guarantee on behalf of PCL Intertech Lenhydro Consortium JV to the employer. The learned Counsel for the assessee has also filed the copy of the Bank Guarantee No.4437ILG003706 issued by Punjab National Bank to THDC dated 23.06.2006 for an amount of Rs. 45,00,000/-. Thus, it appears to have been given for the first time in ....